Exchanging Parties Subject Separately and Distinctly to Capital Gains Tax Based on Fair Market Value or Zonal Value of Subject Properties, Whichever is Higher

February 27, 1996 BIR RULING NO. 032-96 21 (e) 000-00 032-96 Atty. Sergio B. Castillo 17 J. Wright, Brgy. Batis San Juan, Metro Manila S i r : This refers to your letter dated February 25, 1995 stating that a Deed of Exchange was executed by and between the brothers Hugo and Prudencio, both surnamed Castillo, of Brgy. San Teodoro, Bauan, Batangas, concerning real estate properties located in the said barangay; that the said Deed of Exchange was executed by the parties voluntarily and strictly without any financial consideration on both parties; that Hugo, the elder brother of Prudencio, single, jobless, 65 years old, now occupies the old house vacated by Prudencio, the latter having moved to Metro Manila; that the house which stands on the lot formerly occupied by Prudencio was built fifty-years ago and is now in a very dilapidated condition; and that the Municipal Assessor of Bauan, Batangas, in its Tax Declaration for 1994 and in its certification dated October 17, 1994, has not stated any improvement in the real properties. aisadc Based on the foregoing representation and documents submitted, you now request in effect exemption from the payment of the corresponding taxes due on said exchange transaction. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Such being the case, both exchanging parties are subject separately and distinctly to capital gains tax based on the fair market value or zonal value of subject properties, whichever is higher. Moreover, pursuant to Section 196 of the Tax Code, as amended, a conveyance or deed whereby land is assigned or transferred to another is subject to documentary stamp tax based on the consideration or value received or contracted to be paid for such realty. LLjur This supersedes all existing rulings inconsistent therewith. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue